Factsheet
The IMF and Europe
May 23, 2012
The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. We work both independently and, in European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB). The IMF's work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 as a result of the sovereign debt crisis in the euro area.
Policy advice to individual countries
The IMF provides policy advice and economic analysis as part of an ongoing surveillance process for individual economies that culminates in regular (usually annual) consultations with individual member countries.
The discussions are known as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team of economists visits the country to assess economic and financial developments and exchange views with the government and the central bank. The team also often meets with parliamentarians and representatives of business community, labor unions, and civil society. The team reports its findings to IMF Management and then presents them for discussion to the IMF’s Executive Board, as well as to the country concerned, which can use the results to inform its policy decisions.
Assessing the euro area
In addition to its policy discussions with the 17 individual members of the euro area, IMF staff also holds consultations annually for the euro area as a whole. Similar discussions are held for other currency unions, including the Central African Economic and Monetary Community, Eastern Caribbean Currency Union, and the West African Economic and Monetary Union. However, it is only in Europe that such discussions have been formalized as an integral part of the IMF’s surveillance of individual currency union members.
As part of the euro area consultations, IMF staff exchanges views with counterparts from the European Central Bank (ECB) and the European Commission (EC) who are responsible for monetary and exchange rate policies and common policies in other areas, such as financial sector regulation and supervision, trade and competition policies, as well as other structural policies. An assessment of the fiscal position of the euro area as a whole is also included in the final staff report as part of the assessment of macroeconomic policies.
As part of the consultation, staff presents the IMF’s views on the economic outlook and policies of the euro area to the Eurogroup, which is comprised of the 17 finance ministers of the euro area.
Regional analysis as part of the global economic and financial outlook
The analysis and projections contained in the World Economic Outlook, the Global Financial Stability Report and the Fiscal Monitor—the main IMF flagship publications published twice a year— are integral elements of the IMF’s surveillance of economic developments and policies, and financial stability in its member countries. Sections of these publications regularly discuss economic developments and key policy issues in advanced and emerging European countries.
Assessment of the financial sector
In 2011, IMF staff conducted for the first time a European Financial Stability Framework Exercise (EFFE), which is expected to be a precursor to a Financial Sector Assessment Program (FSAP) for the EU. A particular focus of the 2011 EFFE was the internal consistency of the design of the new EU financial stability framework, which is being markedly strengthened with more responsibility for financial stability moving to the EU level. An EU FSAP is planned in 2012.
Analyzing spillover effects
The IMF has also produced “spillover reports” for the five economies in the world that have the greatest impact on other countries through trade, financial, and other links. Two of these reports focused on Europe (euro area and United Kingdom). The goal of spillover reports is to examine outward spillovers from countries whose policies or circumstances may significantly affect the stability of the global financial system.
Providing financing
During the global financial crisis, a number of emerging European countries requested financial support from the IMF to help them overcome their fiscal and external imbalances. In 2010-12, three members of the euro area―Greece, Portugal, and Ireland―also accessed IMF resources.
Where the money comes from
Most of IMF resources allocated to different activities in Europe are provided by member countries, primarily through their payment of quotas. Starting in early 2009, the IMF signed a number of new bilateral loan and note purchase agreements to bolster its capacity to support member countries during the global economic crisis. In early 2011, the amended and expanded New Arrangements to Borrow (NAB) became effective and was activated. At that point, the bilateral agreements of NAB participants were folded into the NAB.
In December 2011, euro area countries committed to providing additional resources to the IMF of up to 150 billion euro ($200 billion). Following the request of our membership last year through the International Monetary and Financial Committee and the general support by the G-20 leaders at the Cannes Summit, the IMF Executive Board discussed the adequacy of the Fund’s resources in January and March 2012. In April 2012, numerous member countries pledged over $430 billion in additional bilateral commitments to further augment the IMF’s resources.
Access to IMF resources for Europe is being provided through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF).
As of March 28, 2012, the IMF had program arrangements with 11 countries in Europe (see table) with commitments totaling about €117.6 billion or $158.6 billion (using the exchange rates prevailing on the effective date of each arrangement). This means that the IMF currently has devoted over 64 percent of total disbursing and precautionary commitments to Europe as a whole.
Most of the first wave of IMF-supported programs in 2008-09 was for countries in emerging Europe. The IMF provided front-loaded, flexible, and high levels of financing for many emerging European countries. In EU countries—including in Hungary, Latvia, and Romania—this financing was provided in conjunction with the EU. The IMF also provided financing to Iceland when its banking system collapsed in late 2008.
The experience developed with the joint programs in Central and Eastern Europe proved useful when euro area countries—Greece, Ireland, and Portugal—requested IMF support. At that stage, the collaboration was further extended to include another natural partner—the ECB. This enhanced cooperation between the IMF, the EC, and the ECB in program countries has become known as the "Troika."
How the “Troika” works
Cooperation through the Troika is aimed at ensuring maximum coherence and efficiency in staff-level program discussions with governments on the policies that are needed to put their economies back on the path of sustainable economic growth and job creation.
While the IMF coordinates closely with the other members of the Troika, Fund decisions on financing and policy advice are ultimately taken independently of the Troika process by the IMF’s 24-member Executive Board.
The European Bank Coordination Initiative
Another cooperative effort, the European Bank Coordination Initiative (better known as the “Vienna Initiative”), was launched at the height of the financial crisis to prevent a large-scale and uncoordinated withdrawal of cross-border bank groups from the region, something which could have triggered systemic bank crises not only in individual countries but in the region as a whole.
The Vienna Initiative brought together the IMF, the European Bank for Reconstruction and Development, the European Investment Bank, and the World Bank, the EC and ECB, home and host country central banks, regulatory and fiscal authorities, as well as the largest western banking groups active in emerging Europe. It helped ensure that foreign banks remained engaged in Eastern Europe and that overall commitments remained intact, in conjunction with IMF-EU supported packages for Bosnia and Herzegovina, Hungary, Latvia, Romania and Serbia.
While banks’ exposure maintenance commitments under the Vienna Initiative have lapsed with the end of the programs supported by the IMF and the EU, the Vienna Initiative participants remain in close contact. They stand ready to address the renewed risks of excessive deleveraging in Eastern and Central Europe and to bolster supervisory cooperation as cross-border banking groups are under financial pressure.
Providing technical expertise
The IMF’s technical assistance helps countries improve the capacity of their institutions and make their policymaking more effective. As such, it contributes to the overall effectiveness of the Fund’s surveillance and lending programs.
The IMF provides technical assistance in a number of areas, including macroeconomic policy, tax policy and revenue administration, expenditure management, monetary policy, the exchange rate system, financial sector stability, legislative frameworks, and macroeconomic and financial statistics. In particular, Efforts in recent years to strengthen the international financial system, including in Europe, have triggered additional demands for IMF technical assistance.
The IMF delivers technical assistance in various ways. Support is often provided through staff missions of limited duration sent from headquarters, or the placement of experts and/or resident advisors for periods ranging from a few weeks to a few years. Assistance might also be provided in the form of technical and diagnostic studies, training courses, seminars, workshops, and “on-line” advice and support.
The IMF has increasingly adopted a regional approach to the delivery of technical assistance and training. The IMF Institute organizes courses for officials from new EU member countries and other economies in transition in Europe and Asia at the Joint Vienna Institute in Austria.